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What is an "offer" of securities and why should you care?

10Sep 14, 2012 BY Sara Hanks

One aspect of US securities laws that frequently trips up the unwary is the fact that US law regulates both the offer and the sale of securities. This is unlike most other securities regulation regimes, and it seems counterintuitive to most folks. After all, if you offer securities in a way you shouldn’t have and no-one buys anything, no harm, no foul, right? Sorry, that’s not the way it works.

To make it even worse, “offer” has a special meaning in Securities World. You might think an offer is something like “Would you like to buy my Preferred Shares at $100 each?” Most normal people would, but sorry, wrong again.

So let’s back way up to basics. The Securities Act of 1933 says that you cannot offer or sell securities to the public unless (a) the offering is registered with the SEC, or (b) there is an available exemption from registration. The crowdfunding exemption under Section 4(a)(6) of the Securities Act won’t be available until the SEC issues its regulations, so right now you cannot sell or offer any securities.

What’s an offer, then? It’s really broad and encompasses any form of “conditioning the market,” that is, anything that might make people interested in a company’s securities. Here are some real-life examples that the SEC (and plaintiffs’ lawyers) might think are offers if made by a company planning capital-raising:

A chapter in a book describing your R&D process.

A statement that a company’s officer makes on a TV interview.

A tweet that you are looking forward to doing crowdfunding when it’s legal.

An interview in Playboy Magazine.*

A statement that “this is not an offer of securities.”

A discussion of your capital-raising alternatives.

If you do any of these things you may end up making an unregistered offer of securities in violation of the Securities Act. This could lead to problems when you actually come to do an offer of crowdfunding securities, especially as we get closer to the point at which it’s legal.

So before you say anything about future capital-raising plans, talk to a lawyer!